Analysts at 4 cloud software companies say they will weather economic downturn

  • Technology companies are facing a market downturn and cloud software companies are not immune.
  • But Zoom, Veeva, ZoomInfo, and HubSpot are poised to come out on top.
  • RBC analysts explain how profitability and growth investments set these companies up for success.

While technology companies are impacted by the market downturn, cloud software companies are not immune to the consequences.

While they were favorites at the height of the pandemic to enable remote working, cloud software stocks have fallen in recent days. For example,


Shares of are valued at roughly the same level as before the pandemic, despite increasing its annual revenue from about $600 million to $4 billion during that period.

Although stocks are down, many cloud or software-as-a-service companies are still profitable and valuable companies. That’s why shares of cloud software companies Zoom, Veeva, ZoomInfo and HubSpot would still be good buys for investors in a


environment, RBC analysts said in a recent note to clients. These companies are able to invest in growth despite the economy, so they are best positioned to weather a market downturn, analysts said.

“These are companies that, because they are profitable, because they have a valuation multiple based on free cash flow, which is profitability for SaaS companies, should do much better in this environment,” Rishi Jaluria, an RBC analyst and lead author on the note, told Insider.

With this money, these companies can continue to invest in new areas of their business and continue to hire. Zoom, for example, is expanding its platform beyond video conferencing.

At the same time, those companies’ competitors that aren’t as financially strong are more likely to experience slower growth, Jaluria said. This is especially true as venture capital money becomes harder to come by.

“We saw that play out in 2020,” Jaluria said. “A lot of venture capital-backed companies had to freeze hiring or invest less because they didn’t want to raise money.”

Analysts say startups or venture capital-backed software companies, like Asana and Dropbox, that aren’t profitable or don’t have huge growth prospects, could soon shrink. This leaves more room for Zoom, Veeva, ZoomInfo, and HubSpot to continue growing and gaining more market share, even in a downturn.

Cloud software companies that provide essential business tools can thrive despite market fluctuations

Shares of Zoom, a $26 billion company, are a far cry from the highs they reached earlier in the pandemic, and its growth has slowed over the past year. But the company is doing well because its product is better than those of rivals, such as Microsoft, RBC analysts said.

Zoom’s valuation could also make it a merger or acquisition target, they said. It’s cheaper than what Salesforce paid to acquire


last year, so it has an achievable price for many potential buyers.

Another cloud software company, Veeva, worth $25 billion, is unlikely to suffer during the recession as it sells software to the pharmaceutical and life sciences industries, RBC analysts said. Even during a market downturn, people are still buying drugs and drugs, so pharmaceutical companies are unlikely to stop spending money.

ZoomInfo, a $17 billion database company, is also doing well, RBC analysts said. Its low stock price of around $42 a share could be “due to potential privacy risks” or because ZoomInfo is “perceived more as a data company than a software company,” the analysts said. analysts.

But ZoomInfo has had steady and growing business since its IPO in June 2020, making it a good investment, RBC analysts said.

Finally, HubSpot, a $15 billion marketing automation company, is also doing well, analysts say. Compared to other CRM companies that serve small or medium-sized businesses like Zendesk or Freshworks, HubSpot is a more promising investment, Jaluria said.

HubSpot “can hold up better in this environment because it has profitability support that many of their competitors don’t have,” Jaluria said, adding, “HubSpot is a complete platform, and so if I’m a small business, and I want to do my marketing, sales, operations, and service on HubSpot, I can.”

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